Loan against property vs Home Loans

Both the loan against property and home loans are the kinds of borrowings. However, there is a minor difference in both types of lending. In the case of a loan against property, the mortgage of property documents is required, while no mortgage is required in the case of regular home loans. The loan’s tenure also differs according to the type of loan. The loans can be availed from any of the lenders according to the choice of the lender. Different lenders charge different interest rates to the borrowers, and thus the ones who charge the lowest interest rates should be chosen. Banks also charge processing fees ranging from 0.25%-1% of the loan amount or Rs.10,000, whichever is lower. Thus the home loan applicant should be aware of the charges being applicable while availing loans. The bank charges processing fees as it incurs a cost for the third-party verification of documents, physical verification of the property, and checking with the land records from the municipal authorities for the verification. In the case of the pre-approved project, the legal formalities of the documents are already verified by the lender for authentication. The pre-approved project loans help in the faster processing of loans to the housing projects where the buyer purchases the flats.

The approval of loans is a simple process. The borrower has to submit the government identity proofs, employment proof, passport size photographs, and income proof. Etc to get the loans approved. The housing loans, either by a mortgage or based on salary, can help the borrower by the homes at an early stage with lower down-payments. The banks are keen to provide loans to the borrowers who are amongst the honest borrowers who repay the installments on time. For that purpose, the bank checks the CIBIL records of the borrowers, which prove whether the borrower is the honest payer of credits or not. The bank expects a minimum CIBIL score of 700 points for the approval of loans. If the credit score is lower than that, then, in that case, the bank charges higher interest rates to the borrowers even if it approves the loans. In case of a loan against a property, the bank majorly verifies the property documents on the property for which loans are to be sanctioned. The other thing about the financial background of an individual is given lesser importance.

Difference between the home loans & loans against property

Description of home loans

  • The home loans are charged interest rates of 6.50%-9% per annum. The interest rates charged for home loans are the lowest in the case of home loans.
  • The tenure of the loans can be maximum of 30 years. However, the actual tenure can be approved upon the age of the borrower.
  • In the case of home loans, no mortgage is required for the approval of loans.
  • Home loans are approved based on the income of an individual.
  • In case of the loans turning into bad debt, the bank has the authority to seal the home loan applicant’s newly purchased property. There is no security deposit being kept with the bank.
  • The CIBIL score is given more weightage during the approval of home loans as the banks are very cautious that the loans should not turn into bad debt.
  • The loan to value ratio is generally 80-90%.

Description of loan against property:

  • The interest rates charged are in the range of 9-15% per annum. The interest rates charged are higher than home loans but lower than personal loans.
  • The funds raised in case of home loans can be utilized for any purpose. While as in the case of home loans obtained, the loans can be utilized only for the purchase of homes.
  • The maximum tenure for a loan against property is 15-20 years. The tenure depends upon the lender to lender.
  • In loan case of loan against property mortgage of the property documents with the bank is necessary for the approval of loans.
  • An individual’s income is given lower importance as there is surety with the lender regarding recovery as the mortgage is kept with the lender.
  • If the loans turn into bad debt, the mortgaged property can be sealed by the bank to recover the pending amount.
  • The CIBIL score is also given lower weightage in case of a loan against property. If the score is exceptionally poor or the applicant is found to be a willful defaulter only, the loans may be rejected in case of a loan against property.
  • The loan to value ratio is usually 75% in the case of a loan against property.

Thus there is a major difference between home loans and loans against property. In the case of the borrower having extra property, only, in that case, the loan against the property can be availed. At the same time, home loans can be taken based on the salary of an individual only.

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